Pay-for-Performance

Critical incident method

The critical incident method is another method developed to overcome the constant errors of rating scales. The critical incident method involves determining those behaviors that are critical to success or failure on the job. When the rater observes these behaviors in the employee, the rater records them, along with the date, and places the data in the employee's performance record.

An informal version of this method is often used in other performance appraisal formats, where the rater is asked to indicate what the employee's job is and how well the employee is doing it. In some cases, this format is just one part of the system, but in others it constitutes all of it. The BARS and BOS methods of performance appraisal use critical incidents as their criteria.

Advantages. The amount of observable information that is available for feedback and judgments is the primary advantage of the critical incident approach and the accompanying performance record. Equally important, the critical incident method gives the manager a means of observing and encouraging employees.

Disadvantages. The usefulness of the critical incident method in a pay-for-performance program, however, may be minimal.

Typically, the critical incident method does not offer any way to summate the rating of an employee, so the ranking of employees would be a qualitative exercise.

The critical incident method is costly to develop, install, and operate, since this method requires managers to keep a record on each employee.

The critical incident method's record keeping requirements can foster negative feelings among employees that big brother is watching them.

360-Degree Feedback

The evaluation method of using multiple raters, all of whom interact with the employee being rated, has come to be known as 360-degree feedback.

The 360-Degree Feedback method assesses employee performance from 5 perspectives:

• supervisor
• peer
• self
• customer
• subordinate

The 360-degree method was first used to review the performance of managers and those that interact with customers but has become more widely used to evaluate all levels of employees. The different perspectives provide more information about the employee being appraised and reminds the employee that they should be mindful of their actions toward everyone they interact with and not just their supervisor or customers.

Clearly this method requires a great deal of effort to implement and administer. Some companies use 360-degree feedback as the sole determining factor in deciding pay increases, while others use 360-degree feedback in conjunction with other appraisals to determine pay increases.

This method may also be used to assist with employee development.